Japanese carmakers are set to get some relief from the weight of large tariffs on their exports to the US, but for many of them lower levies would still bring pain.
US President Donald Trump signed an order on Thursday implementing 15% tariffs on Japanese automobile imports and other products. The new lower rate, originally announced in July, reduces tariffs from the current 27.5%.
The new levies are set to take effect seven days after official publication of the order, but the lower tariffs will apply retroactively from August 7.
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Japan’s benchmark index Nikkei continued its rally on tariff optimism closing at a more-than two-week high with gains of 1.03% on Friday. Shares of major Japanese automakers were also up slightly.
But those in South Korea were slightly lower, as the country is still waiting on an executive order covering a similar trade agreement with the US, including a 15% tariff on shipments from automakers like Hyundai Motor and Kia, down from 25%.
The lower levies on Japan mark the formalisation of a deal between Washington and Tokyo, after negotiations dragging on for several months. The deal reduces uncertainty plaguing the massive Japanese auto sector since the July announcement and confirms an agreement for $550 billion of Japanese investment in US projects.
Our historic trade deal with Japan delivers $550 billion for America to invest and strengthen our nation.
We will use the funds to build our energy infrastructure, chip manufacturing, critical minerals mining, and shipbuilding to name a few.
What we’ve achieved with our… pic.twitter.com/VPtZJYnLR4
— Howard Lutnick (@howardlutnick) September 5, 2025
Trump’s levies on global shipments have dragged down Japan’s exports and hit Japanese carmakers hard. Toyota — the world’s largest automaker — flagged a nearly $10 billion profit hit from the tariffs.
On Friday, however, the carmaker praised Trump’s efforts to reach a trade deal with Japan. “While nearly 80% of the vehicles Toyota sells in the US are made in North America, this framework provides much needed clarity,” the company said in a statement.
For many other Japanese carmakers, the lower levies and a clearer framework are unlikely to be enough to handle the pinch from tariffs. Japan’s smaller car companies will stay under pressure in the US — their top market.
Unlike bigger rival Toyota and Honda, smaller automakers Mitsubishi Motors, Mazda and Subaru are less able to absorb the tariff shock.
US car prices set to go up
Trump’s 15% tariff on Japanese cars is still six times what the rate was – at 2.5% – before Trump slapped levies on autos in April.
It means Mitsubishi, Mazda and Subaru, big exporters to the US, may need to keep raising prices to continue the inflationary squeeze on US consumers. Eventually the companies may need to pursue closer tie-ups with rivals, stop offering some models in the US or even pull back from the market, analysts say.
Subaru sold 668,000 vehicles in the US last year, Mazda 424,000 and Mitsubishi 110,000. Combined this is barely half the 2.3 million sold by Toyota to the US.
Mitsubishi faces the biggest challenge because it does not produce cars in North America and relies on cheaper models that are more impacted by price hikes. It also faces the difficult choice of absorbing the tariff costs or passing them to consumers, risking further loss of market share.
“If the cost of their vehicles goes up, then they lose the market advantage they have and could potentially retreat from the US market,” said Sam Fiorani, vice president at AutoForecast Solutions. Mitsubishi cut its profit forecast by nearly a third last week.
Last month, the company’s CEO Takao Kato said the company was considering the best approach for potential North American factory collaboration with Nissan following recent environmental regulation changes.
Tokyo-based Mitsubishi has raised prices the most among automakers in the US since tariffs began, averaging $2,403 per vehicle, according to a July survey by online marketplace CarGurus.
Mexican, Canadian imports also a pain point
The lower rates, which will take effect within a week or two, according to Japan’s top tariff negotiator, do not apply to cars shipped to the US from the key production hubs of Mexico and Canada. That means Japanese automakers could still face higher tariffs on vehicles from these countries, though cars qualified under a North American trade pact will be taxed only on their non-US content.
Mazda’s Mexico-to-US shipments sunk 54% in the four months starting in April from the same period last year, by far the steepest drop among the 12 automakers that exported to the US from its southern neighbour, Mexican government data shows.
Seeking a boost within the US, Mazda is increasing production of its CX-50 crossover SUV at a plant it operates with Toyota in Alabama. It has lowered U.S.-bound shipments from Mexico to preserve margins and has cut incentives on these models, Chief Executive Masahiro Moro said last month.
The Hiroshima-based automaker was likely hoping consumers would accept higher prices, said analyst Julie Boote at Pelham Smithers Associates.
She expects Mazda to work more closely with Toyota – including teaming up to make vehicles in the US and on procurement and distribution – with Toyota raising its roughly 5% stake in the company within the next two years.
Mazda said last month it was raising the cost on the base version of its Mazda3 sedan to $24,550 for the 2026 model year, up only $400 from this year, but nearly 20% higher than in 2022.
Among other Japanese carmakers, Subaru decided to eliminate the base version of its Outback model for next year, after unveiling price hikes on several models in response to “market conditions” in May. Subaru accounted for the third-largest increase prices among automakers in the US, at $824.
What else is there in the updated US-Japan deal?
Trump’s new executive order ensures that the 15% levy on Japanese imports agreed in July would not be stacked on top of those already subject to higher tariffs such as beef, while items previously subject to tariffs below 15% would be adjusted to 15%.
In addition, Washington promised no tariffs on commercial airplanes and parts.
A separate joint statement released on Thursday said Japan would buy 100 Boeing planes, increase annual procurement of US defense equipment “by billions of dollars” and explore a new Alaskan liquefied natural gas offtake agreement.
The joint statement also ensured the US’s fifth-largest trading partner would always receive the lowest tariff rate on chips and pharmaceuticals of all the pacts negotiated by Washington.
Trump’s order on Thursday also reiterated that the Japanese government has agreed to invest $550 billion in the United States in projects that will be selected by the US government.
The two governments also signed a memorandum of understanding on the details of the package on Thursday, stating it would focus on investments in key sectors such as chips, metals, pharmaceuticals, energy and shipbuilding to be made by January 2029, which coincides with the end of Trump’s presidential term.
Under the arrangement, available free cash flows from investments would be split in half until reaching an allocated amount, and then 90% would go to the United States.
The executive order on the tariff deal said that the United States “may modify this order as necessary” should Japan fail to implement its commitments under the agreement.
- Reuters, with additional editing and inputs from Vishakha Saxena
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